Due-Diligence Gaps Fuel Uptick in M&A Disputes in 2025 – Survey

Why It Matters

In a market racing to close record‑size transactions, inadequate diligence and complex earn‑out structures are amplifying legal risk, forcing buyers and sellers to allocate more resources to dispute mitigation.

Key Takeaways

• Due diligence gaps cause 46% of M&A disputes
• Earn-out disputes rose 11 points to 35%
• Deal volume hit $4.5 trn, up 50% YoY
• Dispute expectations rise, 66% foresee 2026 increase
• R&W insurance prompts more claim filings

Pulse Analysis

The 2025 M&A landscape was defined by speed. Companies, eager to capitalize on a post‑pandemic rebound and a sudden dip in financing costs, accelerated deal timelines, often at the expense of thorough due‑diligence. This rush left critical operational, regulatory, and financial risks undiscovered, turning what should have been routine post‑closing adjustments into full‑blown disputes. Practitioners now advise tighter integration of diligence checkpoints into transaction timelines, leveraging technology‑driven data rooms and real‑time risk dashboards to keep pace without sacrificing depth.

Earn‑outs, once a niche tool for bridging valuation gaps, have become a mainstream mechanism as buyers grapple with volatile earnings forecasts. The recent spike in interest rates and lingering supply‑chain uncertainties have made future performance harder to predict, prompting parties to embed contingent payments tied to post‑closing metrics. As these provisions mature, they are surfacing as a leading source of contention, especially when baseline assumptions prove optimistic. Legal counsel recommends clearer definition of performance thresholds, robust audit rights, and pre‑negotiated dispute‑resolution clauses to curb costly litigation.

Representations‑and‑warranties (R&W) insurance is reshaping claim dynamics. While the coverage encourages early filing of potential breaches, insurers often act as gatekeepers, filtering out marginal claims and reducing exposure for sellers. However, the rise in claims can signal underlying diligence weaknesses, prompting boards to revisit indemnity caps and carve‑out provisions. Looking ahead, the consensus among surveyed professionals is that dispute volumes will keep rising as deal activity remains robust. Firms that invest in proactive risk‑assessment frameworks, align earn‑out structures with realistic benchmarks, and leverage R&W policies strategically will be better positioned to protect value in an increasingly litigious M&A environment.